New Developments in Management Accounting
“The past 15 years have seen a series of new developments within Management Accounting to meet the ever changing needs of the organisation in the light of rapidly changing technologies”.
The following will focus on new techniques and developments used in Management Accounting over the last 15 years, by looking at their origins and apparent necessity leading to their introduction within industry. Each development will be assessed individually providing its background, initiation, impact on the business environment and numerical examples of them in action, where appropriate. The developments will be Activity Based Costing (ABC), Throughput accounting (TA) and Just in Time (JIT).
Activity Based Costing
ABC is a developed costing system which focuses on the activities within the business and assigns cost objects to each activity. An activity is any form of work or task which can be related to the product. In costing, direct costs are already attributable to a job linked to the product i.e. materials and labour, what ABC does is appropriate indirect costs to events or tasks as an effort to lower the risks of conventional overhead recovery systems. By doing this it allows managers to estimate the cost of individual products and services, which lets them remove unprofitable products and reduce the costs of overpriced ones.
The concepts of ABC emerged in the manufacturing sector of the US during the 70’s and 80’s after coming from Japan where it was widely used in manufacturing, from then it was formalised and became a popular decision making tool for managers of that time as absorbing costs via labour was leading to poor decision making at the time. ABC was first coined by Kaplan and Bruns (1987) who focused on its application in the manufacturing sector (where it had been used to best effect), noting that the increase in technology that decade, had to lead to a massive hike in productivity and in turn, reducing direct labour and material costs and increasing
The following will focus on new techniques and developments used in Management Accounting over the last 15 years, by looking at their origins and apparent necessity leading to their introduction within industry. Each development will be assessed individually providing its background, initiation, impact on the business environment and numerical examples of them in action, where appropriate. The developments will be Activity Based Costing (ABC), Throughput accounting (TA) and Just in Time (JIT).
Activity Based Costing
ABC is a developed costing system which focuses on the activities within the business and assigns cost objects to each activity. An activity is any form of work or task which can be related to the product. In costing, direct costs are already attributable to a job linked to the product i.e. materials and labour, what ABC does is appropriate indirect costs to events or tasks as an effort to lower the risks of conventional overhead recovery systems. By doing this it allows managers to estimate the cost of individual products and services, which lets them remove unprofitable products and reduce the costs of overpriced ones.
The concepts of ABC emerged in the manufacturing sector of the US during the 70’s and 80’s after coming from Japan where it was widely used in manufacturing, from then it was formalised and became a popular decision making tool for managers of that time as absorbing costs via labour was leading to poor decision making at the time. ABC was first coined by Kaplan and Bruns (1987) who focused on its application in the manufacturing sector (where it had been used to best effect), noting that the increase in technology that decade, had to lead to a massive hike in productivity and in turn, reducing direct labour and material costs and increasing